A businessman needs P500,000 for his operations. One financial institution is willing to lend him the money for one year at 12.5% interest per annum (discounted). Another lender is charging 14%, with the principal and interest payable at the end of one year. A third financer is willing to lend him P500,000 in 12 equal monthly instalments of P46,000. Which offer is best for him?

A businessman needs P500,000 for his operations. One financial institution is willing to lend him the money for one year at 12.5% interest per annum (discounted). Another lender is charging 14%, with the principal and interest payable at the end of one year. A third financer is willing to lend him P500,000 in 12 equal monthly instalments of P46,000. Which offer is best for him?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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.You are negotiating to make a 7-year loan of $25,000 to Breck Inc. To repay you, Breck will pay $2,500 at the end of Year 1, $5,000 at the end of Year 2, and $7,500 at the end of Year 3, plus a fixed but currently unspecified cash flow, X, at the end of each year from Year 4 through Year 7. Breck is essentially riskless, so you are confident the payments will be made. You regard 8% as an appropriate rate of return on a low risk but illiquid 7-year loan. What cash flow must the investment provide at the end of each of the final 4 years, that is, what is X?
A project contractor needs P500,000 for his operation. One financial institution is willing to lend him the money for one year at 12.5% interest per annum (discounted). Another lender is charging 14%, with the principal and interest payable at the end of one year. A third financier is willing to lend him P500,000 payable in 12 equal monthly installments of P46,000. Which offer is best for him?
a) Suppose you save $4,000 per year at the beginning of each year for 10 years and earn 8.5% interest per year. How much will you have at the end of 10 years? b) You have Rs.25, 000 which you deposited in a bank account, bank promised to pay youback Rs.75, 000 after 8 years. What rate offered by bank? c) You borrowed Rs.500, 000 at 18% for five years. Part a) How much you will pay each year to settle this loan? Part b) If you decided to settle this loan after two years, what additional amount you will payat the end of two years to fully payback this loan while bank is not imposing any fineon you?
Jose borrows P5000 from a lending company for 5 years at 15%. At the end of the 5ft year, he renews the loan for the amount due and another P10,000 more for 3 years at 12%. What is the lump sum due? (You are expected to draw the Cash Flow Diagram in the solution). Follow this solution format: Given: Required: Solution:
Which of these situations would you prefer? Solve, a. You invest $2,500 in a certificate of deposit that earns an effective interest rate of 8% per year. You plan to leave the money alone for 5 years, and the general price inflation rate is expected to average 5% per year. Income taxes are ignored. b. You spend $2,500 on a piece of antique furniture. You believe that in 5 years the furniture can be sold for $4,000. Assume that the average general priceinflation rate is 5% per year. Again, income taxes are ignored.
Consider a financial institution with two assets: 10 percent of the portfolio in one-month Treasury bills and 90 percent in real estate loans. If the FI must liquidate its T-bills today, it receives $98 per $100 of face value; if it can wait to liquidate them at maturity (in one month's time), it will receive $100 per $100 of face value. If the DI has to liquidate its real estate loans today, it receives $85 per $100 of face value, and liquidation at the end of one month will produce $93 per $100 of face value. What is the one-month liquidity index value for this FI's asset portfolio? Express your answer in decimals (not in percentage points) and round your answer to the nearest 2nd decimal. Answer:
A commercial bank is willing to make you a loan of P10,000. The bank wants a 12 percent interest rate and requires five equal annual payments to repay both interest and principal. What will be the dollar amount of the annual payment?
n this economy, there are 10,000 borrowers. Each person borrows $100 for a 1 year loan. For the lender not to make a loss, the lender must set an interest rate such that they earn at least as much as their outside option of not lending to people from all borrowers that did not default in this economy. In this case, the outside option is the risk-free interest rate on a 1-year US Treasury securtiy. The 1-year USTS pays annual interest rate of i = 0.03. What is the minimum interest rate that the lender will charge to borrow money in this economy
4

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